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Supply chain transformation is becoming a critical element for driving business results

Insights from the 2006 Supply Chain Executive Summit Jointly Hosted by IBM and Stanford University

results Insights from the 2006 Supply Chain Executive Summit Jointly Hosted by IBM and Stanford University

Supply

Chain

results Insights from the 2006 Supply Chain Executive Summit Jointly Hosted by IBM and Stanford University

IBM Global Business Services Page

IBM Global Business Services Page

Introduction

The Supply Chain Management Executive Summit, jointly hosted by IBM and Stanford University, was held on October 23-24, 2006. The goal for the event was to create an open dialogue among senior supply chain executives who have successfully transformed their business, or are in the midst of such

a transformation. The event strove to provide a forum conducive to sharing

insights through client presentations, panel discussion and break-out sessions. There were 36 senior SCM executives in attendance from organizations such as, Ace Hardware, Affymetrix, AMR Research, Ascension Health, Boeing IDS, CEMEX, Charter Steel, Cisco, Flextronics, Hitachi, Honeywell, IBM, Johnson

& Johnson, KLA-Tencor, Limited Brands, McKesson, Motorola, Nibco, Nike,

NiSource, Nissan, Nokia, Rio Tinto Iron Core, Safeway, Stanford Hospital, Sun Microsystems, Teknor Apex, and Wolverine Worldwide.

This paper will share the highlights from this event in order to provide insights for other executives as they deal with company-changing transformation efforts and the growing, critical role that the supply chain is playing for organizations.

Supply Chain Transformation Perspectives

Three organizations shared their unique supply chain transformation experiences:

Nokia, Cisco and Nike.

Supply Chain Transformation: Scope Dimension (The Strategy)

Jean- Francois Baril, Sr. Vice President, Sourcing & Procurement, Nokia With an extremely complex supply chain that handles 100 billion components, 60 strategic suppliers, and 10 factories worldwide, Nokia had to be extremely focused in their transformation efforts. New product introductions and variations are also intense – 1 phone can represent 170 handset variations and 250 sales package variants. To support this complexity, the operations philosophy has been: think globally, act locally, i.e. balancing localized decision-making with global planning.

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Nokia started their SCM transformation in 1995 with the strategy of replacing inventory with information and creating a pull-driven supply chain with end-to- end integration linking suppliers, factories, telecom operators, channel partners, contract manufacturers, banks, sales, iHubs, and logistics service provider to the consumer. Their approach was to create the most efficient supplier network to offer the best solutions to meet customer expectations. Fundamentals for success included creating a value-based partnership with suppliers, based upon factual information, leadership, flexibility and trust - “Making the impossible possible through collaboration”. Based on this approach, the supplier network is now considered the central point for reaching their corporate objectives: Great products, Operational excellence, and Customer satisfaction.

The results of their transformation have been impressive with increased sales and reduced component inventories not only within Nokia, but also reduced inventories throughout the pipeline, including supplier and customer inventories. Sourcing excellence is a key ingredient for Nokia’s business model transformation. Benefits include time-to-market, risk management, agility and financial model flexibility.

Nokia believes two critical factors were instrumental to their transformation success: leadership and the communication of the vision. The leadership philosophy relies on four equally important elements: head, heart, hands, and guts. These leadership attributes are exemplified through energy and passion, trust as the base for business, focus and drive, active communication and finally, flawless execution.

Supply Chain Transformation: Focus Dimension (The Initiatives)

Angel Mendez – Sr. Vice President, Worldwide Manufacturing. Cisco Systems Cisco’s supply chain transformation story is about continuous innovation and growth. The drivers for change at Cisco included the evolution of Cisco’s core markets, the growth of emerging and advanced technologies, the development of emerging countries, the diverse customer segments the company serves, and investor expectations. There are four major enablers of Cisco’s transformation:

Focused Destination, Focused Execution, Focused Oversight and Focused Attitude.

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Cisco believes that a “focused destination” is required so that the team can understand, rally behind and agree upon the overall call to action. This focuses the organization on high-impact functions and capabilities. Roadmaps, with time boundaries, provide unification and motivation to align diverse teams to achieve a common objective. All of these efforts are expected to help Cisco achieve its goal of becoming the undisputed leader in supply chain management.

“Focused execution” is being phased along three major dimensions. The first dimension entails organizational re-tooling, inventory reduction and establishing basic demand management capabilities. The second dimension includes developing strategic supply chain alliances, transitioning production to low-cost jurisdictions and launching optimization initiatives. The third dimension focuses on developing a world-class operation with specific attributes, ranging from lean manufacturing to differentiated supply chain strategies based upon product and customer segmentation.

Governance and assigned roles are the thrust behind “focused oversight.” The Manufacturing Excellence Board sets the strategic direction, reviews and approves the portfolio roadmap and manages resources. The operating committee maintains the consolidated roadmap, escalates funding recommendations and develops scenarios. The program management offices maintain planned-versus- actual results, govern projects and resolve issues.

Perhaps the most critical dimension to Cisco’s transformation is its “focused attitude.” This entails developing a mindset of change and defining a high- performance operating system. Leadership sets the direction, inspires people and rallies them around the strategic vision. Cisco understands that its supply chain transformation efforts will be ongoing as the company strives to achieve manufacturing excellence.

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Supply Chain Transformation: Orchestrate Dimension (The Extended Network)

Nick Athanasakos, Vice President, US Supply Chain, Nike Nike enjoys a strong brand, well-managed distribution processes and a compelling product offering. However, with new competitive entrants with better service and lead time, and even fashion brands moving into their market space, supply chain excellence has been elevated in the past few years, and is viewed as a competitive weapon.

Nike’s “Just Do It” motto has affected the mentality of the company and the transformation agenda is calling for change. Their new Process Excellence mantra calls for: process innovation (do it different), continuous improvement (do it

better), and execution discipline (do it right). In support of this philosophy, their transformation initiative is defined as the 5 pillars of the supply chain house:

1. achieve delivery precision through disciplined end-to-end execution

2. enable category consumer focus w/ multiple supply chains and speed to market

3. think and act like a retailer, because we are; focus on the customer

4. maintain pull-market through disciplined inventory

5. optimize cost & infrastructure to drive profitable growth

In meeting the major object of improving customer satisfaction, this supply chain transformation is focused on the customer – meeting customer product requirements, improving customer relationships, improving requested delivery performance, and reducing claims and cancellations to lower inventory holding costs. Focused on actual point-of-sale demand, processes are being transformed from the retail shelf backwards, to achieve a leveled flow of product throughout the supply chain. Demand planning processes are also being redesigned from the retail perspective, and “retail reality” is incorporated in product design.

Their delivery precision roadmap, includes a playbook of prioritized initiatives, with executive sponsorship, including: demand/supply matching, improving sales catalog accuracy, streamlining distribution center operations, and optimizing processes globally. They have also created a governance board that sets the strategies, prioritizes the initiatives and drives company-wide execution based upon standardized processes and platforms

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Several overarching principles of Nike’s supply chain transformation include:

1. focus on the vital few prioritize investments aligned with business strategy and return

2. simplify end-to-end: drive out waste & complexity from the process first, then enable

3. avoid customization: standardize solutions to improve processes

4. copy-paste companywide: replicate best practices across business units, regions and brands

5. lead the change: invest in project & transition management

6. accelerate the pace: respond quickly to new business needs

7. deliver business results: finish what we start through business benefits achievement

Leadership Essentials

A panel discussion provided insights into the essential elements of supply chain leadership. The panel members included: Tim Carroll VP Operations for IBM’s Integrated Operations; Jesus Lopez, VP Logistics, CEMEX; Nick Athanasakos, Vice-President, US Supply Chain, Nike; and Jean- Francois Baril – Senior Vice- President, Sourcing & Procurement, Nokia.

What is your biggest challenge? IBM: Determining what I don’t know to set the vision and strategy with the right operational direction and metrics. NIKE: Driving change fast enough NOKIA: Extending the lead. CEMEX: How to transform and best serve every day.

What is the one change that you know you have to make, but culture is getting in the way? NIKE: Process discipline NOKIA: Complexity – better forecasts. CEMEX: Integrating our 50 companies. IBM: developing the thought process that supply chain is the fabric of the overall company and not a set of processes.

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How do you balance initiatives, i.e. handle strategic alignment with prioritizing initiatives? NIKE: Cost/return equations along with readiness filters. IBM: Value. Line executive owner had to make commitment and book to the future financials. NOKIA: The more you equate to the business drivers, the easier it is to prioritize the improvement initiatives. CEMEX: As we acquire companies, make sure that the SC tools and measurements are in place.

What drives you to determine the next level of efficiency, if there is no burning platform? NOKIA: Look with your brand – not with your eyes to examine the competitive landscape. CEMEX: Give people the freedom to initiate change and suggestions for change. Continuous learning brings continuous change. IBM: Burning platforms humble you. Don’t allow complacency. NIKE: Don’t become a victim of your success.

Supply Chain Strategies

The group broke into breakout sessions to discuss a variety of questions that touch on challenges facing organizations as they develop their supply chain strategies. The following summarizes these lively discussions.

Which strategies have been most effective for supply chain transformation?

1. Align all constituents, both internal and external (planning, operations, sales, and R&D), with common goals and metrics.

2. Forecast from customer to supplier; direct SKU forecast from the customer with 98% reliability.

3. Link supply chain objectives to the corporate objectives.

4. Develop the strategic roadmap.

5. Establish corporate level commitment.

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7. Attract and retain talented supply chain people with management practices and supply chain principles.

8. Integrate supply chain with every business unit.

9. Develop the supply chain partners in collaboration, open book and trust.

10. Benchmark to key performance measures; common measures to support the strategy.

What are the top 3 emerging trends to supply chain transformation?

1. Scarcity of logistics out of Asia.

2. Changing roles of partners in the network – who is adding value, how is the value spread, how is it changing over time.

3. Synergy of partners - use the same players in different ways and integrate what they do, i.e. the combined power of integrating the network.

What are the top 3 supply chain challenges?

1. Change management.

2. End-to-end visibility and alignment of expectations of the transformation.

3. Trust across the supply chain, including stakeholders.

What are the greatest risks to supply chain transformation today?

Minimizing organizational and cultural change via a lack of leadership and executive sponsorship.

Implementing poor technology or allowing technology to derail supply chain initiatives.

Lacking the one truth that everyone can follow.

Impacting customer and service levels while making major process changes.

Having too narrow view of the supply chain may miss areas for improvement.

Not effectively communicating the value and benefits being realized.

• Seeking short term gains that sacrifice longer term gains.

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An Academic Viewpoint

Dr. Hau Lee, Stanford University Dr. Hau Lee summarized the summit by emphasizing that supply chain can be the driver to business growth and market value creation. Specifically, structural transformation can be attained by leveraging the supply network, new business models, supplier integration, products to service migration, and technology evolution.

Leverage the supply network for new solutions – to assist in the design and development of new product innovations. Utilize the network and the knowledge to create new businesses.

Tailor supply chains and scale. Drive mass customization for volume and unique configurations for specialized markets (scale effect)

Outsource for process excellence (substitution effect)

Achieve process innovation through intra and inter-organization integration. Change the mindset

Continue to seek lower cost sources of product and labor

• Leverage product flow and information flow to include the financial flow

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Conclusion

The reasons for supply chain transformation are multifaceted with companies needing to increase value add to their end customers; to provide more timely and cost effective products and services to market; to better synchronize the flow of information, products and cash; and ultimately to increase productivity and profitability. Effective integration and management of cross business unit dependencies are essential, enabled by end to end, closed loop processes; information technology; and defined policies and management systems. Our discussions evidenced that it is critical to have a comprehensive strategy and clear goals to drive tactical and operational decisions, and that strong leadership with vision and conviction, may be the most important ingredient to success.

The following words and phrases succinctly summarize the major insights culled from this executive summit:

Leadership

Visioning and Metrics

The supply chain has arrived

Process, People, Partnerships

Increase the goals and sense of urgency

Absence of technology as the focal point

There is no finish line – it’s an ongoing journey

The supply chain profession transcends the industry

Emphasis on process before making the technology decisions

Change the mindset from cost reduction to supporting business objectives of growth or market branding.

© Copyright IBM Corporation 2006 IBM Global Services Route 100 Somers, NY 10589 U.S.A. Produced

© Copyright IBM Corporation 2006

IBM Global Services Route 100 Somers, NY 10589 U.S.A.

Produced in the United States of America

01-07

All Rights Reserved

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